The Trump Administration released a proposed rule earlier this week that would allow employers to offer tax advantaged Health Reimbursement Accounts to employees to use while shopping on the Exchange. This is a big, complicated rule that is grappling with a lot of challenging interactions but so far it seems to make a good amount of internal sense and policy sense.
One of the cases where it could help out is on reducing labor market frictions. Changing jobs should be easier for people who are insured through an individual market policy that is partially funded by their current employer via an HRA. The major mechanism of friction that I am looking at today is the out of pocket reset point.
We’ll work through an example for illustration.
Let’s look at Paige — she is in her late 20s and is happily working at Company A as a low level analyst earning $35,000 a year. Company A offers a single high deductible plan with a $3,500 deductible for insurance with a $250 month premium that comes out of her paycheck and a $600/month actual premium. Paige has a chronic condition (multiple schlerosis) that requires expensive routine treatment. She meets her deductible every year as soon as she runs her credit card through the swipe machine at the pharmacy in the first week of January. She spends 10% of her income on out of pocket expenses.
Now Paige met with Company B. Company B has offered her a job at the same salary but far more interesting work tand similar insurance. Company B will rescind the offer if she does not commit to start on November 1. Her new insurance would start on November 1.
Within this story she has a few current options allowed under current policy:
- Accept her new employer’s (Company B) policy with a start date of 11/1/18 and pay a new $3,500 deductible when she goes to the pharmacy.
- COBRA her previous (Company A) policy through the end of the year, paying $1,200 in premiums (incremental extra $700) but avoiding a new deductible. She’ll start on Company B’s plan effective 1/1/19.
- Switch to an Exchange plan until the end of the year, and pay out roughly the same in premiums (net change $0) and a new $3,000-$4,000 deductible
Any move she makes to switch to a job that is a better fit for her that pays the same is a money losing proposition. Some jobs are worth leaving even if there are real costs but those are odd cases. The more common case is that a current job is at least good enough to stay unless there is a positive reason to leave for something better. Company B is offering more interesting work but no more money. They are also offering a fairly significant hit to Paige’s earnings for the next year due to health insurance. Marginally Paige might be happier at Company B but that is going to cost her significant money ( 2% of earnings) as she needs to bridge her insurance for the rest of the year.
In an HRA supported individual market policy, her current employer (Company A) would have put its analyst employee class on the Exchange to buy similar plans. When Company B offers her the same money and more interesting work, Paige needs to do nothing about her health insurance. COBRA is irrelevant as she owns her policy. Switching jobs or not switching jobs is an easier decision with lower costs.
I’ve been scratching my head hard on the HRA rules since they were released earlier in the week and this is one of the first clear thoughts I’ve had. I think they solve real problems (including some of the family glitch problems) but this plan would at least increase labor market flexibility.
J R in WV
And of course, here we meet one of the Russo-Republican pressure points.
Part of their hatred for health-insurance regulated by or provided by government is that it provides additional job-seeking freedom to the working class citizens. And they want the working class to be slaves to their corporate personalities, unable to change jobs because of the lock-in of their insurance. Really, they would prefer it to just be illegal to leave a job, ever, but making it practically impossible instead is something they’re willing to settle for.
Mayken
Okay, there’s GOT to be a catch here. There is simply no universe in which the Trump administration has done something that is actually beneficial for working people… I definitely like the idea of letting employees buy on the Exchange – another step to decouple health insurance from employment is a Good Thing in my books – but I am sensing there is more in this for the employer than the employee. Am I just being paranoid?
opiejeanne
@Mayken: That was my reaction: there’s gotta be a catch somewhere in there.
Also, I keep reading posts by men (almost entirely men) yawping about how the ACA is too expensive, it costs so much more than their previous plans, and then they cite the really ridiculous co-pays and out of pocket ceilings before insurance takes over. Are they smoking something that would be illegal in most states, or is this just trolling using stupid information, or do they live somewhere that this is the norm under ACA? I know that in California there’s a gap that affected some of the middle class adversely when it first came out, and there were plans to fix that, which never happened. Is that what these yahoos are crying about or do they have a legitimate gripe?
ProfDamatu
@opiejeanne: The part about the cheaper premiums is most likely true – under the status quo ante, there were indeed a lot of cheap, broad-network UNDERWRITTEN plans, which often excluded maternity coverage. So, if you were a young male who could pass underwriting (i.e., no pre-existing conditions), you often could get a health insurance plan for much cheaper than is the case under the ACA, at least in terms of pre-subsidy premiums. And the out of pocket cost sharing was often better than what it is now on most ACA plans. For example, I’m a woman, but my last pre-Exchange insurance plan had premiums roughly comparable to what I pay now with subsidy (again, woman!) but my maximum out of pocket was $2000, compared to my current OOP of $5600. As I’m sure you know, the main reason that there were some cheap, comprehensive individual medical insurance plans pre-ACA was because those plans were underwritten, and anyone who looked even slightly likely to cause expensive claims would be turned down or up-rated. Insurers had tools like rescission in their toolbox as well, if they screwed up underwriting and got “stuck” with someone who had the temerity to get expensively sick.
For the co-pays…that’s really dependent on what kind of plan, and the region, as I understand it. I know in my area, specialist co-pays can be $50 or more depending on your plan design; heck, some plans only have office visit co-pays after you’ve hit your deductible (so you pay full freight for all specialist visits until then). And as for deductibles and coinsurance (i.e., the OOP max)…unfortunately, that’s something that it’s going to take a Democratic government to fix. As I understand it, this has to do with the structure of the metal tiers, which are each tied to a specific actuarial value (AV). Because medical costs keep rising, the max OOP basically has to keep increasing every year; otherwise, a Silver (let’s say) plan creeps up into the AV band reserved for Gold plans. I may not have this 100% understood, so I’m kind of thinking out loud here, but an example – numbers made up, no relationship to actual costs!:
Say your plan is a Silver plan, which has to have an AV of 66-72%, meaning that for a standard population, the insured people will pay 34-28% of their medical costs, with the insurer picking up the rest. If the average person in a silver plan has medical expenses of, say, $2000 a year, then the plan needs to be structured such that the typical Silver enrollee is paying $560-680 on their medical costs each year. So maybe the plan starts out with a deductible of $500, and the rest is made up of co-pays and coinsurance, up to an OOP max roughly similar to the upper end of that OOP range.
But then, after a few more years’ worth of medical inflation, even if your covered population isn’t any sicker, their average medical expenses are now $3000 a year. If our starting point was a 72% AV Silver plan, with that OOP max of $560, but the average medical expenses go from $2k to $3k…well, that $560 is only 18.6% of the $3k in costs, meaning that the “Silver” plan is now in the AV range reserved for Gold plans (76-82% AV). So, each year, coverage has to on average get at least a little bit worse, in terms of cost-sharing, just because of medical inflation. And naturally, real numbers are not so much $560 OOP as $5600!
All of that is a very long-winded way of saying that many people are indeed seeing massive and rising cost-sharing requirements, and it’s something that does need to be addressed; sick people, who will hit their OOP max every year, are getting squeezed harder and harder, and they’re less likely to have income increases that will help cushion the blow (and they need to stay under the subsidy cutoff anyway). Having said that, the absolute maximum OOP for a given year is set by the law (I think it was like $7150 last year), so if anyone claims to have OOP costs above that, there are a few possibilities: they could be on a non-ACA compliant plan of some sort (short term, perhaps) that does have a higher OOP max (of course that wouldn’t be the fault of the ACA); they might have had a lot of out of network care (very possible with HMOs) and just not understood that out of network costs paid don’t count towards your plan deductible or OOP max (again, not the fault of the ACA per se, although the narrow networks that are common under the ACA do end up screwing some people over pretty badly); or of course they could be lying. As to the California thing – no clue! :-)